Greek bond spreads down significantly

Greek bond spreads and CDS prices fell significantly on Monday as the market reacted positively to the results of an EU Summit last Friday offering Greece an extension in repayment of a 110-billion-euro loan and lowering its interest by one percentage point. The market also welcomed a decision by EU leaders to raise the funds of a European Financial Stability Fund along with offering the ability to purchase state bonds in the primary market.

Greece’s credit default swaps fell by 60 basis points to 985 bps, with all other regional Eurozone states’ swaps falling with the exception of Ireland. The yield spread between the 10-year Greek and German benchmark bonds eased below 940 basis points, from 965 bps early in the day.

Dimitris Drakopoulos, an economist at Nomura International in London, told Bloomberg that a decision allowing the EFSF to buy state bonds in the primary market could facilitate Greece to return to capital markets in the first quarter of 2012.